November 06, 2006

case 1-428-604

Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century

About Hindustan Lever Limited
Hindustan Lever Limited began operating in India in 1888 with the distribution of its “Made in England” Sunlight detergent. In 1931, when India was still a British colony, Hindustan Vanaspati Limited was formed
Published by GlobaLens, a division of the William Davidson Institute at the University of Michigan. Research Assistant Maulin Vakil and Professor Ted London of the University of Michigan developed this case. They thank Vijay Sharma and Rohithari Rajan of Hindustan Lever for their assistance.© 2008, Ted London.

Unauthorized reproduction and distribution is an infringement of copyright. Please contact us for permissions: Permissions@GlobaLens.com or 734-615-9553.

DO

In fact, since 1999 revenues at HLL had remained nearly constant, an outcome stockholders had not welcomed. With this lack of growth, increasing attention was directed to the company’s Millennium Plan an ambitious blueprint outlining the company’s growth strategies for the 21st century. The Millennium Plan was a part of the company’s renewed emphasis on business focus and operational efficiencies. Additionally, a core aspect of the Plan was to identify and nurture businesses of the future. Over 150 new businesses were proposed before the list was narrowed down to nine. These included a foray into drinking water, a plan for network-based marketing (along the lines of Amway) and an entry into retailing herbal therapy products and services through a chain of therapy centers. Perhaps the most interesting, though, was an initiative called Shakti, which aimed to extend the reach of HLL’s products to the 742 million rural consumers in 637,000 villages at the base of the economic pyramid, a market not well-served by HLL at the time.

NO T

On August 30, 2004, Hindustan Lever Limited’s (HLL) share price on the Bombay Stock Exchange touched Rs.100.5 (US$ 2.28) - a new low for one of the largest Indian companies by market value (see Exhibit 1). In its Q2 2004 results, HLL’s bottom line had fallen by 43% due to price pressures in its mainstay detergents business. Procter & Gamble, its long-time nemesis, had unveiled a series of price cuts on its leading detergent brands, Ariel and Tide, forcing HLL to respond. As a consequence, operating profit margins, which had peaked in 2002 at 19.6%, declined to 14%.2 Furthermore, although the mergers, restructuring, and operating changes that HLL underwent in the 1990s had helped profits grow through 2003, the company’s top-line growth had remained more or less stagnant over the past few years, causing some analysts to re-align their portfolios.

CO PY

Rural demand for, and consumption of, consumer products is set to explode. The challenge for most companies is to be able to offer appropriate products in an affordable way in relatively remote locations. It is our view that India will soon see an inflexion point in rural consumption.1 Mr. K.B. Dadiseth, Hindustan Lever Limited Chairman

Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century

1-428-604

as a 100% subsidiary of Unilever in India. It primarily sold soaps, detergents, and other household products to a select group of affluent consumers, such as British government employees and the Indian elite. In November 1956, the company merged the group’s companies Lever Brothers India Limited and United Traders Limited to form Hindustan Lever Limited. HLL offered 10% of its equity to the Indian public, and was the first the first international company in India to do so. Unilever, which gradually divested its stake in HLL, now holds 51.55% equity in the company. The rest of the shares are distributed among about 380,0003 individual shareholders and financial institutions. Until the 1960s, the company remained a medium-sized player, choosing to market high-end brands to a select class of Indian consumers. However, it gradually began to relinquish control to local managers, and in 1961, P.L. Tandon took over as its first Indian Chairman. In the years that followed, HLL continued to launch new brands in the FMCG (fast-moving consumer goods) segment, including the highly successful Lifebuoy and Liril bath soaps, Surf detergent powder, Fair and Lovely Fairness cream, and Close-Up toothpaste. The company also began a backward integration plan, setting up a subsidiary for chemicals (Hind Lever Chemicals), and acquiring Ponds India, Lipton India, and Brooke Bond India. In 1993, HLL completed the acquisition of Tata Oil Mills Company (TOMCO), its long-time rival. On January 1, 1996, the group’s companies merged to create India’s single largest foods and beverages company and one of the biggest publicly traded companies in India. Today, the company is a $2.5 billion juggernaut in the Indian market, with a commanding presence across several product segments. HLL is comprised of two operating divisions: Home and Personal Products (HPC), consisting of its detergents, soaps, and personal care lines of products; and Foods, consisting of staple foods, bakery, confectionary, beverages, and frozen foods. In past years, leading national and international publications like The Economic Times, Business World, Far Eastern Economic Review, and Business Today have frequently rated HLL as one of India’s best-managed and most admired companies, and commended its achievements at enhancing shareholder value. HLL currently employs 42,000 employees, including about 1,425 managers,4 with a corporate objective to “meet everyday needs of people everywhere - to anticipate the aspirations of our consumers and customers, and to respond creatively and competitively with branded products and services which raise the quality of life.”5

Growth at the Top: Strategy Rooted in Consumer Marketing and Distribution
As suggested by the corporate objective, Hindustan Lever Limited’s business focus is directed at better serving consumers, and its reputation as a leading consumer marketer in India is unparalleled. HLL brought a scientific, consumer-oriented approach and competitive acumen to its business in a manner previously unknown in the country. Early on, it came to be known across India for its products that had slowly but steadily appeared on virtually every shop shelf across urban and semi-urban India. In the 1970s, HLL emerged as a prominent advertiser on the radio, in magazines and daily press, and on billboards across the country, and it spent as much as 10% of its annual turnover on advertising and media. With the advent of television in India in the early 1980s, HLL quickly became a powerful force to be reckoned with. Its brands quickly captured the imagination of the Indian public with the clever use of characters such as the Liril waterfall girl, Lalita-ji of Surf detergent, and leading stars from Bollywood (India’s film industry) who endorsed Lux bath soap. The company’s philosophy as a maker of high quality, mostly premium-priced products continued to influence HLL’s marketing strategy.
2

DO

NO T

CO PY

3 DO Nirma was created around a simple premise: that of putting a convenient and affordable product within reach of millions of households that could not afford expensive detergents. providing the company with an advantage that was the envy of its competitors. By 2000. Initially. Karsan-bhai made a series of innovative business decisions that maintained a low cost structure. and set off on his bicycle to sell the packets door-to-door. which had created a vast network of intermediaries. with 7. then gradually to rural markets. These retailers were loyal because a large portion of their revenues were typically comprised of Unilever products. he devised a way to synthesize washing powder in a plastic bucket without electricity. Indeed. he expanded his reach using wholesale distributors who ensured his products reached the farthest corners of the country without requiring him to invest in a sales organization. Even with its fast growth. further minimizing operating costs. the firm was able to maintain its business model based on broad. Also. Gradually. HLL could efficiently provide its products to consumers in a convenient fashion. making sales visits on his bicycle. cost-effective distribution and low operating costs. in a bid to stay ahead. HLL’s vaunted distribution network failed to serve more than 500. unlike Hindustan Lever Limited. the relatively simple and labor-intensive production process did not require electricity.15. after his daughter Nirupama (whose image was to become the brand’s visual identity of the ‘dancing girl’). and 3. For example.000 stockists helping directly cover 1 million outlets. he leveraged the home-grown nature of his business to gain tax and duty concessions from the government of India. expanding first from urban to semi-urban markets. Every packet of Nirma that Karsan-bhai Patel sold to his consumers came with a money-back guarantee. using soda ash as the chief ingredient. He would prepare the dry mix detergent powder. reach. Nirma was priced at Rs. even HLL’s large network was insufficient to cater to a majority of Indian people who lived in remote villages. NO T In 1969.6 A Challenger from the Base: The Growth of Nirma Nirma also maintained a low-cost distribution structure. Yet. where supplying and selling every-day products could not be done using the company’s existing distribution methods. including exemption from the minimum wage laws that were applicable to other companies operating in India. By focusing on efficiencies. To be able to do this profitably.Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 HLL also built a strong national distribution system. and packaging was done by hand.5 million outlets in 3. meaning the company was ignoring over 500 million potential customers (nearly half of the country’s population) located at the base of the economic pyramid.3 per kilogram. pack it by hand in polythene bags. and visibility. HLL continued to invest heavily in maintaining its advantage. the company had the largest national distribution network of its kind in the country. when competing products like Surf sold for as much as Rs. HLL was able to carve out a vast network of retail outlets that were connected seamlessly by the country’s most sophisticated distribution chain. which became a source of competitive advantage for the company.6 million outlets through the rural network.700 towns and cities through the urban network. The total coverage was far higher. a Gujarati entrepreneur. He named the product Nirma. which was actively promoting the small-scale industrial sector at that time. As sales grew. Being a chemist. Karsan-bhai himself supplied the product to the doorstep of his customers. This led to a significant cost advantage in manufacturing for Nirma. CO PY . set up his first detergent-making unit in the back yard of his home in Ahmedabad. As its rivals tried to play catch-up. Using this distribution chain. so did Nirma’s scale of operations. Karsan-bhai7 Patel.000 rural villages. So successful was his product that wholesale traders could be seen standing outside his factory waiting patiently to purchase their supply of Nirma from Karsan-bhai. servicing 1.

the price tag meant that its appeal was largely restricted to the urban.470 million8 ($56 million) in FY2004. Besides. Nirma has grown rapidly. by 1982 Nirma had steered itself into a dominating position in the Western India detergent market. due to their soda-based formulation (and thus high alkalinity) they were harmful to the skin. The flagship company Nirma Consumer Care achieved a turnover of Rs. CO PY .25. For instance. The study seemed to reassure HLL that its superior quality product would prevail in the long run. NO T 4 Surf used product demonstrations with a bucket to induce housewives to replace soap-scrubbing Nirma with a convenient detergent powder. with a whopping 58% of the market. according to Karsan-bhai: In the early 1980s. Traditionally. and were.with pricing to match.Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 Furthermore. compared to Surf’s 33%. Surf used petrochemical-based raw materials (essential to qualify as NSD) in fabric-wash products instead of soda ash. HLL was left with a depleted market share of only 8. HLL Ignores the New Challenger Hindustan Lever Limited appeared to have the most to lose with the success of Nirma. To HLL’s surprise. But the positioning of the TV commercial was such that a majority of the populace thought the film was being presented by Nirma! Since the modest beginnings from Karshan-bhai’s home in 1969. HLL had almost single-handedly ‘created’ the category known as Non-Soapy Detergents (NSDs) with the launch of Surf in 1959. making it a time-consuming and physically strenuous chore. While HLL spent around 10% of its sales on advertising and promotions. From its commanding market position in the early 1970s. DO Through the early 1970s. Also. and the view was that these products were not as effective in washing clothes as NSDs. Indian households used soap bars to wash clothes (or ‘fabric-wash’). premium products . consequently. newly introduced detergent powders provided convenience and high-quality fabric care. By this time. Nirma had grown to be the number 2 brand with 12% market share. however. By 1977. Nirma would be one of the advertisers for the Sunday evening Hindi feature film (the most widely watched TV program). when television began to make inroads into rural and urban India. serving 300 million consumers through a channel of one million retail outlets and 400 distributors.2. Its advertising jingle stressed the product attributes and also saluted the savvy and budget-conscious Indian housewife. middle. The company was also highly creative in maximizing the impact of its advertising. Nirma’s erosive impact on sales and market share was now quite obvious. While Surf soon became popular. At a time when washing machines were non-existent in India. HLL conducted consumer studies to understand the emerging competition from Nirma and other small-scale sector9 brands. Nirma’s advertising adopted the value-for-money philosophy.4%. and it reaches across the Indian subcontinent. which had been the traditional ingredient. Nirma’s rarely exceeded 2% of sales. Nirma’s success did not affect HLL.to upper-middle class households. Nirma’s growth had begun to have an impact on HLL’s market share. and by 1985 it was the highest-selling detergent in India.830 million ($587 million) and a profit of Rs.

6 per kg. Rather than modifying an existing product. For instance. By the early 1980s. managing to stymie Nirma’s growth in the Northern markets. low-price strategy. NO T 5 CO PY .12 per kg. This development effort was combined with a large-scale marketing campaign to win back Indian detergent consumers. when Nirma was priced at Rs. HLL’s approach was looking increasingly inadequate in the changing marketplace. Managers at HLL began to recognize the new lower-income segment in the marketplace. They also saw the need to fend off the bottomup brands such as Nirma with a new brand distinct from Surf. and they eventually nibbled away almost all of HLL’s gains in North Indian markets.10 The initiative was a result of a growing realization of the need to adopt a more comprehensive approach to the problem. Hindustan Lever Limited made a second attempt. Hindustan Lever Limited initiated a nationwide market research effort that provided the company with several key consumer insights into its competition with Nirma. which was popular in its soap-bar form. These brands from Unilever’s successful international product lineup were priced at 35% less than Surf with an intention of filling the gap in the market. This attempt at merely using international brand names in the Indian market failed. Sunlight.15 per kg. A New Approach at HLL In 1986. Nirma and other small-scale players provided much greater value than even Sunlight did. however. thus leading to their preference for products that required not only value but also lower per–unit price. However. Sunlight was packed in plastic bags instead of standard (but expensive) glossy cardboard boxes to keep prices low. To emphasize Surf’s superior quality: This was accomplished through a new advertising campaign using ‘Lalita-ji. HLL made some notable exceptions for Sunlight. brand Sunlight. Nirma was attempting to gain national foothold by expanding its presence from the Western states into Northern India. and Lalita-ji became a household name. albeit temporarily. a move that had hitherto been taboo due to the MNC’s norms on product presentation and packaging. HLL senior managers had identified three strategic priorities for the initiative. Hindustan Lever Limited started a company-wide initiative to understand and strategically counter Nirma. even though they were priced significantly below Surf.Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 HLL’s Early Responses In the late 1970s. but popular. the new offerings were available at Rs. In an effort to close the market divide between Nirma and its own product offerings. Sunlight’s success in Northern India attracted regional small-scale sector brands like Fena and Ghadi. in order to protect Surf in the premium-end of the market and to challenge Nirma in the lower income segment: DO 1. which targeted a more premium segment. Indeed. the company’s scientists began working to develop new ways to create detergents by using locally available raw materials and low-cost manufacturing technologies. HLL experienced success for the first time in this battle. and Surf was at about Rs. The campaign was an instant success.’ a housewife who reminded consumers that ‘buying Surf makes better sense’ due to its better cleaning quality and price-value equation. Nirma’s success had inspired several local start-up businesses that also challenged HLL’s market share. which imitated Nirma’s low-cost. For example. as the products could not match Nirma in value. HLL fired its first salvo with the test launches of Ala and Rinso (see Exhibit 2). this time by reviving an old. This market research also led HLL to understand that consumers who purchased Nirma had daily wage income. was launched by HLL in washing-powder form in response to this new move by the challenger.

2002. much like what Nirma did. “Hindustan Lever Re-invents the Wheel. IESEUniversity of Navarra. A further factor aiding HLL was that Nirma had grown too large to enjoy the tax benefits of being a small-scale sector company. Wheel also followed a lower distribution cost structure. Bollywood-style melodramatic tone. 3. Persistent lobbying with the government of India by the Indian Soaps and Toiletries Association resulted in the removal of some tax benefits and ensured a more “level playing field. with a housewife saving the day for her husband by washing his clothes sparkling clean and thus earning his admiration. By 1987. HLL believed that it had created a suitable product with which it could potentially beat Nirma. and it was available at an affordable price. HLL eliminated the Carrying and Forwarding (C&F) agents from the distribution chain by shipping directly to major distributors. NO T Table 1 Sales ($m) 150 100 180 Gross Margin % 18 18 25 6 Detergent Brands Profitability. What made Wheel a truly unique story at HLL was that for the first time. The product was priced to induce Nirma and other small-scale sector brand users to try it. Together. .Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 2. Wheel also broke another long-held tradition at HLL by using wholesalers who purchased Wheel in large quantities from the company. Furthermore.9 per kg compared to Nirma’s Rs. 2003. Wheel offered superior cleaning and attractive pricing of Rs. suggesting a different metric for evaluation for base-of-the-pyramid ventures (see Table 1). and HLL backed it with a large advertising and trade budget.7. The Wheel brand team was also unique in that it was lean and staffed with general managers rather than functional specialists. The advertising was done in an over-the-top. which met the low unit-price requirement of the target market segment. Wheel marked the first time that HLL reduced its profit margins per unit in its battle with Nirma. To create dissonance toward Nirma by highlighting its skin-damaging effects: A comparative advertising campaign was created to raise awareness of the harm caused to hands after the use of ‘low-quality detergents’ as a result of the extensive use of soda-ash. Wheel was available nationally. For Wheel. manufacturing was outsourced to a low-cost subsidiary that benefited from small-scale sector concessions.” Prahalad & Hart. thereby reducing costs. this helped keep overhead expenses low and improve bottom-line results. The Indian business press hailed HLL’s long-overdue acknowledgement of a new market segment that it had largely missed for so long. Moller & Rodriguez. which had relied on premium-brand image and high margins to market within India. At last. CO PY Wheel offered consumers the convenience of a bucket wash without causing harm to skin or to clothes. 1999 ROCE% 121 93 22 Economic Profit ($m) Na 4 7 Nirma HLL Wheel Wheel denoted a significant shift in mindset for the management team at HLL. However. To directly attack Nirma in the bottom-end segment with a new product: This led to the creation of Wheel detergent powder. while margins were lower. return on capital employed was very impressive.” Ellison.” DO HLL Premium Wash Source: “The Fortune at the Bottom of the Pyramid.

with a per capita annual income below Rs. marketing. and Nyle (shampoos) were challenging HLL in prized segments through value-for-money. as even higher-end consumers began choosing low-priced products over the premium brands being touted by HLL. Among those that were selected was an idea for reaching rural India.18 which is nearly three times the population of urban India (285 million).15 A cross-functional team consisting of managers from finance.000 villages comprise over 128 million households and have a population of 742 million. with a 16% market share of the total laundrywash category.00 ($227). with Wheel eventually emerging in 2003 as the largest fabric wash brand in India.101.102. Dadiseth (who has since retired) unveiled the much-talked-about Millennium Plan .3 million)16 and a new management structure. Shakti was born.Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 HLL had finally successfully responded to Nirma in this long war for market share. From 1993-1999. 7 DO NO T On April 25.100 million ($2.a strategic blueprint for the company that had been prepared in collaboration with external consultants.000 ($477). Additionally.43 billion12 ($2. In the first year. high overheads relative to those of its local competitors. under Executive Director Dalip Sehgal. at the annual shareholder’s meeting. and headed by a business manager was set up to get the idea off the ground. Thus.21.11 A New Challenge: A Slowdown in Growth at HLL After growing its revenues at a fast pace throughout the 1990s.B. Ideas for growth were extensively debated. at this time new players such as Ghadi (detergents). based on Hindustan Lever Limited’s existing capabilities or its ability to build them over time. The centerpiece of this initiative was a fundamentally different rural distribution system based on Self-Help Groups (SHGs). and the team of consultants and company managers identified 142 ideas of which nine were short-listed. with a seed capital of Rs. Analysts highlighted some obvious areas of concern at HLL: a high margin structure. and a lack of genuine product and business model innovation.14 CO PY . the company seemingly stopped growing in 1999.13 HLL’s Millennium Plan A New Ventures team. sales had stagnated. then-Chairman K. Hindustan Lever Limited’s series of mergers had added market clout and created opportunities for efficiencies.20 Exhibit 3 shows the dispersion of rural income by household. was handed the task of selecting and implementing growth opportunities for HLL in the new millennium. Since 1999. If the plan met the action standards.327 billion) in revenues. HLL’s FMCG market had also borne the brunt of the Indian recession of 1997-99. much of the focus was on conceptualizing the entry strategy and testing it out in the market. India’s nearly 639. but had also made it difficult to maintain growth momentum. and packaging innovation. sales had surged five-fold to Rs.305 billion). and marketing. a market that HLL had only touched with the introduction of Wheel.19 compared to the national average of approximately Rs. and the company closed fiscal year 2004 with Rs. it would be scaled up. however.10. The Indian rural population is substantially poorer. Chik (personal care).17 Rural India: Challenges and Opportunities Roughly three quarters of India’s population lives in rural villages. technology. 2000.42 billion ($2.

In the words of Dalip Sehgal.’ Star sellers were wholesale merchants who purchased HLL products from the rural distributor and supplied retailers in smaller villages using low-cost transport such as bicycles or rickshaws. The company had always been a pioneer in the way it expanded into new consumer segments. these efforts did not address the need to create sustained local demand in the marketplace via locally based advertising and promotion. HLL managed to add 6. Executive Director. New Ventures: HLL was realizing that a lot of the previous initiatives had worked on the ‘reach’ parameter. HLL was selling to a customer experienced in. The initiative was explicitly looking to generate value both for the company and for the rural communities it was trying to serve. Second. While the idea of expanding presence in rural markets was not new. First it was designed to overcome most. the hurdles encountered in prior rural forays while still maintaining channel control and cost-efficiencies. the company had developed Project Streamline. nor did they generate substantial investments in consumer education directed at promoting behavior change. etc. In addition. More than half of Hindustan Lever Limited’s products were bought by rural consumers. In fact.000 new star sellers who helped expand HLL’s reach to 50. A Need for a New System With the success of Wheel. With Project Streamline. a large-scale effort to increase its distribution in inaccessible rural areas by adding a new component to its distribution network.000 new villages. 59%). these efforts were limited in their ability to solve the entire problem. Hindustan Lever Limited had made efforts to further expand into rural markets. or the communication initiatives had worked on the ‘communication’ parameter. and sustained demand) together. Indeed Shakti (which means “strength” or “empowerment” in many of the local Indian languages) was different from other rural expansion efforts by HLL. Overall.000 untapped villages that were either too small or too far flung to be reached even by star sellers. HLL was for the first time taking a proactive and holistic approach to reaching out to the most rural of consumers in India.21 However. communication. That’s how Shakti was conceptualized. a significant shift in the selling-only model that previously dictated MNC activities in rural markets. that are purchased infrequently. these numbers paled in contrast to 500. automobiles. the company recognized the vast untapped potential of rural India.Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 Due to the sheer size of the population. For instance. But there wasn’t a comprehensive business model that looked at getting all three (reach. rural India is potentially a lucrative market for any consumer products company. In both Streamline and Wheel. its consumption has also been growing steadily since the 1980s and is now bigger than the urban market for both FMCGs (53% share of the total market) and consumer durables (consumer products such as electronics. but this was an extremely ambitious initiative even for the experienced marketers at HLL. known as ‘star sellers. Indeed these efforts focused on getting products into the hands of interested retailers who previously were outside of HLL’s distribution network. Yet when HLL considered that its products were available in less than 15% of the villages. the Shakti mindset provided the company an opportunity to participate in social and economic development of rural areas. for two key reasons. acting as an intermediary between the top and base of the pyramid. They emphasized enhancing HLL’s reach by using a familiar partner. if not all. as well as those of other consumer product companies in India. for example. DO NO T 8 CO PY . or comfortable with.

2 years of schooling. and performance. lower than the global average of 990. In Shakti. Although each of the three Shakti initiatives relies on self-help groups. chief among them are the absence of HLL products and a population of less than 5. self-help groups act as savings cooperatives. a continuing gap in both the rural economy and the development of self-help groups was the limited number of opportunities to use micro-credit in developing new ventures. By providing enterprise opportunities to rural women. The HLL Shakti team then typically approaches local self-help groups through contact with the NGOs that work with them. Moreover.000. And that makes a big difference. as seen in the well-studied case of Grameen Bank in Bangladesh and in micro-finance projects elsewhere. Villages served by Shakti are carefully chosen by the HLL team based on a number of criteria. which has remained with the husband. who also makes most decisions for the family. employment. More than 50% of girls drop out of school by the time they are in middle school. It is a paradox of modern India that women wield power and hold positions at the highest levels of administration.Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 How Shakti Works The team at Hindustan Lever Limited manages three separate initiatives under the Shakti umbrella: 1) the Shakti Entrepreneur Program. while the Indian male spends 3. we were clear that while it was going to help HLL. there is considerable resistance to changing the stereotypical roles. these groups also can gain access to micro-credit institutions. and women find it difficult to assert themselves in a male-dominated rural society. Shakti leverages the network of self-help groups that had been created by the federal and state governments across villages in India. As Rohithari Rajan of HLL puts it. Shakti can enhance its societal impact. and agriculture projects that produced outputs that were sold within the same community. The Gender Issue in India The status of women in contemporary India is reflected in the state of their health. the average Indian female has only 1. “when we looked at Shakti. A typical self-help group consists of 8-20 members. 2001 **Women’s education in India. and business. The woman’s status as a wife does not give her control over the family income. and life in society. In the vast majority of cases.5 years in school. poor women have an excellent track record when it comes to commitment. These self-help groups were development initiatives targeted at enhancing local savings and industry (such as handicrafts and other hand-made products). and 3) the I-Shakti community portal. However. the traditional view of a maledominated society continues to prevail. yet large groups of women are among the most underprivileged. Most micro-enterprises usually consisted of small ventures such as basket-weaving. many of them supported by the government or local or international non-profits.** Women in rural India are primarily involved in household chores such as cooking and looking after children. local handicraft. education. Moreover. repayments. there is a very strong development aspect since we work specifically with underprivileged rural women. 2) the Shakti Vani Program. and at creating a stronger social system within rural villages. *Census of India. The clearest indicator of discrimination is the skewed sex ratio: 933 females* for 1000 males in India. Regular contributions by the members are invested in a joint account and then loaned internally to members according to their needs. airing grievances and resolving local disputes. they perform a distinctly different function for the community and for the company. Even today.” Additionally. Vtoria Velkoff International Programs Centre DO NO T 9 CO PY . The managers at HLL recognized the opportunity to create a new type of profitable venture by applying micro-finance to building a local business that had long-term profit and growth potential for the entrepreneur. and its activities include learning new vocational skills. Based on savings. government. it was also going to help the people that we were going to partner with.

knowledge of HLL brands. Some of the women are literate. Shakti can play a role in shaping the gender equation within the community and increasing awareness of key social and development issues (see “The Gender Issue in India” on previous page). The entrepreneur is expected to follow a fixed route. Moreover. each costing between Rs. hair oil and shampoos. songs.10. which creates a village fair atmosphere with games. and customer segmentation. into its business venture. tea. sachets).18 ($0.200 ($16-27). earning 11-13% on consumer sales and 3% on trade sales. Entrepreneurs are known to apply ingenuity in overcoming the infrastructural and promotional challenges faced in rural India. which is approximately equal to the annual per capita income in rural India) to buy inventory of HLL products. book-keeping. For example. HLL products such as bath soap.23 which brings in a doctor to disseminate information about health and hygiene. while others rely on children and family members to help with the order-booking tasks. These funds are usually made available via micro-credit through self-help groups. Sometimes. depending on the size of the area to be served) from a target village to become a Shakti entrepreneur or Shakti-ammas22 to promote and distribute HLL products within of a group of 4-6 neighboring communities. Shakti-ammas have organized an Arogya (health) day. Shakti entrepreneurs are encouraged to sell to the village community as well as to small local retailers.25.000 ($568).2 to Rs. The entrepreneur is supported by an HLL team member. laundry detergent. The RSP also assist the entrepreneur in creating sales promotions and special events. order-taking.10.000 ($227) although in the case of mature entrepreneurs it is known to reach over Rs. bank loans may be obtained against collateral such as cattle and livestock.700-1. The mornings are usually spent taking orders.Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 Shakti Entrepreneur Program The longest running Shakti initiative is the Entrepreneurship Program. Initially.g. Others are known to hire the help of relatives and friends in surrounding villages to act as salespersons. In the past. oral and skin care products. Leveraging the participants of existing self-help groups. and salt are provided in affordable “daily-use” sizes (e.38).000 ($227. specifically rural women. who trains and guides the Shakti-amma in the skills required to be a distributor. The training is mostly on-the-job and covers selling skills. The Shakti Entrepreneur Program seeks to expand HLL reach by involving the village communities. which began in 2001 with a pilot project in the south-central Indian state of Andhra Pradesh.04 to $0. By focusing on women. HLL invites one woman (or sometimes more. which is equal to or exceeds the average monthly income in rural India. The goal of these promotional efforts is to create broader local awareness of the health benefits of specific practices. Monthly turnover is expected to average around Rs. an entrepreneur in the Nalgonda district was able to expand her market reach by contracting the back-hauling services of an auto-rickshaw that plied between neighboring villages. and a Shakti day. The Shakti entrepreneur is then expected to diligently record these sales in a register provided by HLL. DO NO T 10 CO PY . This leaves the entrepreneur with a net profit (after deducting expenses and loan repayments) of Rs. making stops at homes and shops along the way. They sell to consumers at the retail prices and to retailers at the trade prices. flour. for most Shakti entrepreneurs these business activities are designed to be supplemental in nature. though. such as hand-washing and tooth-brushing. the Rural Sales Promoter (RSP). leaving sufficient time for existing local livelihood activities. and product giveaways. since prospective entrepreneurs may not have access to traditional means of credit. Shakti entrepreneurs are expected to invest around Rs.

called Shakti ‘Vani’ (Sanskrit for ‘speech’).29. I-Shakti Kiosk The kiosk can also be used as a computer-based classroom. and SHG meetings. animal husbandry. and animal husbandry. selected to spread information and awareness on important issues such as health. The program had covered 10. The Vani earns a fixed salary per day. . agriculture. and medical issues. which has set up computer kiosks across the state.000 Shakti entrepreneurs. 11 DO NO T Shakti Community Portal A recent addition to Shakti is the ‘I-Shakti’ community-based portal. It was expected to cost Rs. By building brand messages into the software package. The portal has modules covering important information such as health. relevant information. The program does not generate any revenues for HLL. Shakti has expanded its network to cover 80. after a training program. an interactive computer-basd module with inputs on health.000 villages in 12 of India’s 28 states through 25. While the I-Shakti program was designed primarily as a resource for the local community. and personal care. The objective of this program is to be an advertising medium for both health challenges and company solutions within the rural markets. Games and interactive quizzes are used to generate audience interest in the issues. price of agriculture outputs. as it has modules to cover education from grades one to seven. I-Shakti provides a substantial benefit compared to having to travel to a town to obtain information on local weather forecasts. agriculture. sanitation.000 more in 2005. travels from village to village spreading the company’s message at gatherings such as village events. the project has been rolled-out in Andhra Pradesh in cooperation with the local government. based on the route and villages covered. and education services to rural areas. Rather. To scale up the program to other regions. Shakti Today Since its inception in 2001.9. and they end up showcasing HLL products such as soap and toothpaste.000 (US$648) per portal. the cost was estimated to be approximately Rs. these community-based portals provide a useful marketing tool. HLL’s I-Shakti portal helps the company market to areas with limited media coverage and low literacy. Currently. Another important feature is the ability to communicate with local experts such as doctors and agriculture technologists and to ask specific questions. CO PY The Vani is appointed from the self-help group and.000-11. etc. sanitation. and is linked to the internet via a once-a-day dial up connection. This is a socially-led communication effort which involves a ‘Vani’ (speaker).000 ($200 . it is designed to be a cost-effective approach to generating behavioral change and promoting the company’s existing brands. beauty. appropriate use of fertilizers. Shakti Vani helps create awareness of not only the problems but also how HLL’s products offer ways to overcome them. hygiene.Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 Shakti Vani Program The second initiative in HLL’s Shakti is a communicationled program. In an area which was not conducive to traditional advertising methods. For villages with poor road connections. I-Shakti provides internet connectivity. Hence. What makes the project especially intriguing is that it offers a model for generating economic benefits for the company while also producing social benefits for rural communities (see “The Social Impact of Shakti” on the following page).$244) per village per year. local schools assemblies.000 villages in 2004 and targeted 50. the program has in-built button options through which users can find out more about HLL products. Although the advice provided is brand-neutral. the company can also use it as a medium to convey its brand messages.

Otherwise. a small village in the Indian state of Andhra Pradesh. and Bharatamma claims that “our lives have finally changed for the better. But the reason it is scalable and sustainable is that it conforms to rules of business. and her efforts paid off very quickly. Bharatamma is 55 years old and lives in Peddakaparthy.” The Shakti story has drawn media attention both in India and overseas. agriculture is the chief occupation. it leads to greater reach without having to augment an expensive distribution chain built around large volumes (see Exhibit 5). it creates good will and awareness for the company by using local talent that act as spokespersons in areas where traditional advertising media cannot reach. just like any other HLL project. they crowd around me and call me ‘Shaktiamma. Given these challenges. and looking at how they can be advanced. In 2004.Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 The Social Impact of Shakti In Peddakaparthy. Business Head of Shakti. when Bharatamma heard about Project Shakti. 2005. In September 2003 she started her business with a small loan. When Farmers die. it creates a stake in the community within which Shakti operates. states that the project has clear profit-making objectives. her family members worked in the fields for their livelihood. drought. and it has the dubious distinction of having one of the highest farmer suicide rates in the country. For decades. the project has made a great impact on the confidence of its participants. Finally. Sharma explained further: Right now. If that happens. You could call it a social initiative that is accountable to business or a business initiative that is accountable to society. Indiatogether. In this environment. but beyond that. When they see me. including The Wall Street Journal. but we [HLL] have certain action standards that have to be respected at all times. she decided to become a Shakti Entrepreneur.” *P. The erratic nature of monsoon rains over the years had forced them to the brink of an impoverished existence. it is certainly going to impact the brands in terms of the reach and sales they get. Shakti is looking at plowing it back into Shakti or I-Shakti or Vani. quite simply. Second. First. Their monthly income now exceeds Rs. a Shakti entrepreneur from Tamil Nadu puts it: ““It is more important than money. which featured it on its front page on May 25. As Ratna. her husband and her son have joined her in selling products door-to-door and to retailers in their village and in surrounding areas. Beside the income-generation aspect. there are a lot of companies that can do CSR [corporate social responsibility] initiatives. The parameters have to be the same. We don’t talk about that when we talk about BoP [Base of the Pyramid] business initiatives because. it becomes a subsidy. So. If they are relaxed. over 300 farmers* took their lives as a result of poor agricultural output. and we are currently investing all of that into the Shakti business. 12 DO NO T CO PY . creating first-mover advantage over rival FMCG companies and countering the future growth of possible imitation products. We look at profit-making objectives. For HLL. Sainath. Now.1500 ($34).’ I am someone today. word-of-mouth is an effective source of influence and persuasion. Shakti offers a more comprehensive and entrepreneurial approach to addressing the issues faced in serving rural India.org While not disclosing specific revenue targets. and indebtedness. those [CSR efforts] are activities geared towards philanthropy and this is a [BoP] initiative that is scalable and sustainable. Shakti is a self-sustaining model that is generating a lot of returns. I’m not sure if we would be as accountable. Vijay Sharma. The state has been facing droughts in many districts.

summarized as follows: “Of critical importance are market share gains on key products which are not visible. a major issue is the drop-out rates of the Shakti entrepreneurs.000 entrepreneurs by the end of 2006. HLL managers are reluctant to label Shakti a success. The pilot project covered 50 villages in the Nalgonda district of Andhra Pradesh. the Shakti team at HLL has grown to 45 members. it faces new challenges. which in turn. Today.000 villages and 30. However. By mid-2005 scaling was beginning to occur. the project has relationships with over 350 nonprofit organizations and other non-traditional partners. and Shakti in particular. The Shakti management team has found that training is a critical element of the entrepreneur’s ability to improve her earning capabilities.5%. The main causes of drop-outs are low support received from the family and the community. and the Shakti team took this opportunity to prove to themselves. it could be scaled across India. The team felt that once an effective model was developed. the growth in new categories is also not visible”. brings out a set of challenges around relationship management and social performance expectations that are new for HLL. When the initiative first started. they offer Shakti credibility due to the goodwill established in rural villages. but since 2002. While the project was approved within Hindustan Lever Limited in 2000. indicating that price cuts and not value were driving business. there was more bad news (see Exhibit 6). had posted an 8% volume growth. and profit after tax had plunged 33%. As the project gathers steam. DO NO T 13 CO PY . depending on the location. What is clear is that if it is sustainable and scalable. as well as to others. Secondly. Is Shakti a Solution to the Growth Crisis at HLL? When Hindustan Lever Limited announced its FY 2004 results. however. the sheer size of operations has also brought challenges. Moreover. Collaborating with such a diverse and growing group of partners. Shakti. To help manage these new partnerships. comprising brands like Wheel and Surf and accounting for 43% of the company’s turnover. however. local and international non-profits play a vital role in providing an understanding of local communities. Shakti: The Challenges Ahead The Shakti model took some time to be perfected before allowing for large-scale implementation. Shakti will provide a radically new channel for the company through which it can serve the needs of 742 million rural consumers and lift its flagging revenue and stock numbers. As the initiative scales up. also needs to consider the influence of nature and geography on the local economy in rural India. is not without its own unique challenges. Currently. Nikhil Vora. its value-based market share had stayed virtually stagnant at 37. they act as aggregators of the local communities through the self-help groups. is dependent on annual rainfall. Rural markets are primarily dependent on agricultural income. an FMCG sector analyst with SSKI Securities. Another idea being considered is to develop partnerships with non-competing companies to increase the portfolio of products available to a Shakti Entrepreneur. and limited success at income-generation. HLL in general. the drop-out rates were as high as 50%. For Shakti. They are now down to about 5-7% per quarter. Its top-line revenues had fallen 2%.Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 While it has been the most successful Millennium Plan initiative to date. that the model could indeed work. The 1990s were perhaps the best years for rural India in recent memory. by end 2003 there were less than 3000 entrepreneurs. and the Shakti team was looking to extend its reach to 100. monsoons have been below normal. Shakti started off as a two-member team with ambitious goals at HLL. The company’s laundry business.

as well as competitors. Currently. As a result. crucial questions remain: Will Shakti and the BoP markets it targets deliver to HLL much-needed long term growth and become a key source of a future sustainable competitive advantage? HLL’s BoP strategy had evolved from the development of a low-cost detergent named Wheel to Shakti. the Shakti model has been extensively studied by other Unilever subsidiaries. a business strategy specifically targeting the BoP segment.Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 The company has put together its ambitious Millennium Plan to move it into the next stage of growth. or are further developments required in HLL’s business model to serve the rural poor? Finally. journalists. But is this evolution sufficient. Since 2000. Shakti-inspired models are being implemented in Unilever Bangladesh and Unilever Sri Lanka under different identities.000 villages and 30.000 entrepreneurs. how effective is HLL in achieving its stated goal of making a positive social impact in the communities in which it operates? DO 14 NO T CO PY . the Shakti has taken off and is now poised to reach 100. and students. Yet.

Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 Exhibits Exhibit 1 HLL 3-Year Stock Price on Bombay Stock Exchange Source: Bombay Stock Exchange Limited Exhibit 2 The Nirma Story Timeline 1960 NO T Nirma powder launched DO 1980 Nirma becomes 2nd largest brand in India Nirma becomes the largest detergent brand in India HLL launches Sunlight powder Operation STING conceived Wheel launched 2000 15 CO PY Surf launched 1970 HLL tests Ala. Rinso Nirma detergent bar launched 1990 Wheel overtakes Nirma as the largest detergent brand .

1 Note: In December 1995.0 % of total villages 15.001.9 25.22.000 Indian Rupees 45.001 .0 11.691 Source: Census of India.313 18.541 Less than 200 200-500 127. which is conducted every 10 years. it was US$1 = 44 Indian Rupees Source: National Council for Applied Economic Research.2 Indian Rupees.758 593.0 16 .6 21.0 100.000 Indian Rupees 22.000 & Below Distribution by percentage population(est.2 100.45.662 80. The NCAER study is based on the population data provided by the Census of India. In 2001 (most recent data).4 24. Exhibit 4 Distribution of Rural Population NO T Population # of villages 92.817 1001-2000 129.154* 2001-5000 DO 5001-10000 Total # of villages *Total inhabited villages is 638.Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 Exhibit 3 Distribution of Rural Income By Household Consumer Class Very Rich Consuming Class Climber Aspirant Destitute Total Annual Income Above Indian Rupees 215.001.3 13.6 31.215.0 14.9 13. the ratio of rural-to-urban population in India was 742 million to 285 million.4 21.0 49.000 Indian Rupees 16.054 501-1000 144. in May 2005. The same ratio was 628 million to 217 million in 1991.2 23.5 3. 2001 CO PY 100. the exchange rate was US$1 = 35.4 0.) 1995-1996 2006-2007 0.000 Indian Rupees 16.5 31.

Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 Exhibit 5 Hindustan Lever Limited Distribution Chain HLL Factory C&F Agent Redistributor Stockist Large Retailer Urban Consumer NO T Shakti Dealer 17 DO CO PY Rural Distributor Sub-stockist Outlet Redistributor Stockist Outlet Rural Consumer .

0 17.00 17.0 4.1 54.30 Amount Available for Appropriation Earnings Per Share (Rs) Book Value (Rs) Per Share Note: Rupees in Millions 1 US$ = Rs.207.00 0.201.299.2 2.815.673.00 21.053.4 19.5 7.9 6.5 100.431.917.4 55.7 62.80 9.1 5.044.1 18.3 1.748.485.590.62 4.4 20.8 77.00 0.647.5 66.8 29.8 21.7 106.602.8 102.00 0.2 1.309.00 15.50 .2 15.4 3.6 0.7 1.5 109.141.71 18 17.571.061.4 2.206.00 15.5 1.2 107.341.956.367.8 1.297.5 20.3 2.708.766.00 22.25 9.0 5.8 0.0 1.264.9 103.1 20.860.4 1.1 7.7 6.128.5 5.58 16.87 13.678.3 4.149.82 17.244.656.0 19.8 1.7 6.5 Dec ‘04 Dec ’03 Dec ‘02 Dec ’01 Dec ‘00 CO PY 5.559.883.290.916.7 56.00 14.686.159.5 25.1 3550.0 102.399.170.8 109.1 20.664.126.843.527.209.7 0.1 15. 44 (based on prevailing exchange rate in May 2005) Source: Hindustan Lever Limited DO NO T 11.024.991.474.0 0.130.859.143.9 100.3 5.201.2 131.832.9 667.415.4 1.5 18.Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 Exhibit 6 Profit and Loss Statement Years 2000-2004 Year INCOME Sales Turnover Other Income Total Income EXPENDITURE Power & Fuel Cost Other Mfg Cost Employee Cost Selling & Admin Expenses Expenses Capitalised Operating Profit Interest and Financial Charges Depreciation Other Write-offs Profit Before Tax Tax Profit After Tax 1.4 0.7 3.153.5 16.6 91.152.618.0 13.798.4 1.00 0.429.446.6 0.8 105.21 11.699.9 1.786.907.247.323.

15 17 18 19 20 21 22 23 National Council for Applied Economic Research. Dadiseth unveiled the company’s strategic vision. <www. Equitymaster. C.. 6 Nov. 2004.B. Ibid. As of 2005. “Unilever in India: Hindustan Lever’s Project Shakti--Marketing FMCG to the Rural Consumer. Annual shareholders meeting address. Widely admired by the development community.43. 30 Aug. ORG-GfK Retail audit. 2004. Rangan. 4 Sept. Personal Conversation with Ajit Andhare. CO PY .” 25 Apr. -amma: literally.B.rediff. “Unilever in India: Hindustan Lever’s Project Shakti--Marketing FMCG to the Rural Consumer.” Business World. mother but also a general term for elder women in India.com>. 2006.com.Hindustan Lever at the Base of the Pyramid: Growth for the 21st Century 1-428-604 Endnotes 1 Dadiseth. a micro-credit organization started in 1976 in Bangladesh by economics professor Mohammad Yunus.” Economic Times.com>. entitled “Millennium Plan. Grameen’s model of relying on the power of self-help groups has been replicated in a number of other emerging economies. The Bank defied conventional banking rules by lending to the poor with no collateral and relied on self-help groups as a means to ensure accountability of borrowers. 2 3 4 5 6 7 8 9 10 11 12 13 14 “A New Improved HLL. 2004. Ibid. Company P&L Statement. and Rohithari Rajan..” The Financial Express. K. “HLL Project Shakti To Cover All Rural India.” Harvard Business School Case 505-056.” Harvard Business School Case 505-056.5. Small-scale sector: a part of industry with small capital needs and high labor-intensity.equitymaster. 2004. 2004. NJ: Wharton School Publishing. 2004. “A Premium Future for HLL. < www. HLL Corporate Profile. Grameen Bank had made cumulative loans of US$5. 2001. Rangan. V. Kasturi. Prahalad. Upper Saddle River. V. Kasturi.025 million and maintained a repayment rate of 96%. HLL. 2006. 2 Mar. Ibid. -bhai: an Indian term of respect. higher than that of traditional commercial banks. 6 Nov. Census of India. literally meaning ‘brother’. K. DO 19 NO T 16 Exchange rate: $1 USD to Rs. “Remaking Lever. 2000. 31 Mar. The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits. where Hindustan Lever Limited Chairman Mr.India Abroad. was a pioneer in using local groups as a key component in an enterprise’s business model. Grameen Bank. and Rohithari Rajan.” Rediff .K.

Sign up to vote on this title
UsefulNot useful